International Demand and Country Risk Analysis

This study forms an entirely new area of research on Small Island Tourism Economies (SITEs). It addresses the importance of uncertainty in monthly international tourist arrivals and country risk indicators to the macroeconomy.

Monograph Chapter

Extract

8.1 SUMMARY OF THE MONOGRAPH The aim of this monograph was to analyse the conditional volatility of monthly international tourist arrivals to SITEs in a univariate and multivariate framework. The most important characteristics of SITEs were examined in Chapter 2, while taking account of the implications for economic development. The common size measures given in Table 2.1 clearly showed that the most prominent feature of these economies is that they are small. SITEs are well known for having a limited productive base and small domestic markets. Many of these SITEs are necessarily and relatively undiversified in their production of exports. SITEs face difficulties when they need to respond to any changing external circumstances because there is a capacity constraint in the private sector. To address this problem, SITEs have to rely considerably on international trade and FDI. This is beneficial in terms of gaining access to international competition and to new ideas. SITEs do not have developed capital markets domestically, and so they need to gain access to international capital markets to hedge against adverse external shocks and the profound volatility of GDP growth. SITEs are considered risky entities, so that it can become very costly and difficult for them to gain access to private international capital markets. The efforts of SITEs to exploit economies of scale and to diversify their productive base within their small domestic markets does not necessarily imply that these SITEs have smaller per capita GDP, or an exceptionally low record on economic growth. SITEs may...

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